Foreign Aid Disadvantages

“[E]ven though aid is meant to encourage development, aid dependence results in bad governance, stunting development” (Ear, 2012). Since the end of World War ll, foreign aid or development assistance received by poor countries has become an important source of government finance (Sources). The incentive of rich countries to provide foreign aid has many reasons. Due to the dark eras of colonialism and both World Wars, the idea was to help poor nations build up their economies and improve people’s livelihoods. This is most importantly reflected and summarized in the millennium development goals set by the UN – the overall aim to eradicate poverty. In theory, it is meant to improve people’s well-being and induce sustainable growth and development.

Donor and recipient countries generally focus on the amount of aid that is pumped into a country or project. But the real debate should be focused on how to promote effective aid. For this to happen governments of both donor and recipient countries will need to establish sound economic policies, budget transparency, new approaches to tackle corruption, and reinforce tactical poverty reduction programs (Watkins, 2009). Governments of African countries lack much accountability (Dichter, 2005). It is for this cause that foreign aid or development assistance has not been effective (Dichter, 2005). But this cannot be blamed alone on developing countries, as Michela Wrong points out in her book about Kenya, “It’s Our Turn to Eat, it takes two to tango on corruption—and northern governments (including Britain) are often complicit”. Nevertheless, aid can make a difference when people and governments have the will to use it more effectively and with a sound approach. To do so, a synchronized approach must be applied. Four factors will be taken into account to illustrate ideas and solutions that can change the future of development assistance. First, institutional change; second, improve the system of loans grants; third, application of a hybrid development approach and fourth, invest in the public

Loans given to African countries over many years have put many countries indebt, thus prohibiting aid from attaining development goals (Moyo, 2009). From a business perspective grants can be provided to those that show eagerness and motivation to curb poverty. This can reduce the dependency on aid and create confidence. Besides, microcredit projects that provide loans are not always regarded as a basis for transformation, even if money is available for expansion (Klees, 2010). Klees (2010) further argues that “…Many people who are poor will not borrow, and small scale entrepreneurship is not going to achieve an equitable and sustainable development.” (p. 24). Furthermore, bookkeeping and cash management of these microcredit projects have problems with getting the loans repaid. This is often blamed on the recipients incapable to improve their income or could not manage the money wisely. From several fields perspectives, it is argued that microcredit projects require thorough training and careful supervision of the activities, as well as careful selection of borrowers (Dichter,